Private Equity Funds: How they work in 2026

Updated June 18, 2026

Private equity funds were long considered the domain of major investors: high minimum investments, long terms, and capital calls spanning years. For many private investors, this was practically out of reach. Today, a new generation of funds is changing access, particularly evergreen and semi-liquid funds. That is exactly why it is worth looking at the mechanics: anyone who understands how private equity funds are structured can better assess the opportunities, costs, and risks.

What is a private equity fund?

A private equity fund pools capital from investors and invests it in companies that are typically not traded on any stock exchange. The fund manager selects investments, supports the companies over several years, and ideally sells them later at a profit.

This is what distinguishes private equity from traditional stock funds or ETFs: you are investing in a portfolio of private company stakes whose value is not determined daily by a stock market price. We explain how private equity works in principle in our comprehensive Private Equity Guide. If you are primarily looking for the distinction from exchange-traded products, our article on Private Equity ETFswill help.

The core concept is simple: the fund collects capital, buys stakes, works on their value appreciation, and sells them later. The implementation behind it, however, is complex.

The classic world: closed-end funds

Classic private equity funds are usually closed-end funds. This means the fund is launched, collects capital, and invests in selected companies over several years. The term is often ten to fifteen years.

In this structure, there are capital calls. Investors commit to a specific amount but do not pay it all in immediately. The fund calls up the capital gradually as new investments are made. For large investors, this is manageable because they have their own teams and liquidity reserves.

For private investors, this was long the main hurdle: having to hold capital for many years, minimum investments often in the six-figure range, and almost no flexibility during the term. In Germany, this market was therefore long characterized by one thing: it was institutional, difficult to access, and required significant explanation.

The new world: Evergreen and semi-liquid funds

Evergreen funds work differently. Unlike traditional closed-end funds, they generally do not have a fixed maturity date and remain open for new capital on an ongoing basis. Their value is calculated using the Net Asset Value, or NAV, which represents the estimated value of the fund's assets minus its liabilities.

What is particularly relevant for you: With many evergreen and semi-liquid funds, you invest in a single step. There are no capital calls as seen in traditional structures, where capital is requested repeatedly over several years. This makes starting your investment much simpler.

Redemptions are also handled differently. Many semi-liquid funds offer monthly or quarterly redemption windows, though these come with limits. While this sounds more convenient than a rigid term, it requires clear perspective: such funds are designed for the long term and are not as liquid as ETFs, which can be traded daily. Redemptions may be capped, deferred, or subject to specific fund terms.

This very structure has transformed the market. The old six-figure barrier is no longer the only option. Neobrokers have also demonstrated that private market segments and fund products can be offered with lower entry amounts. At NAO, access to selected private market funds starts from as little as 1 euro.

How a private equity fund is structured

A private equity fund consists of several roles and components. Once you understand them, the entire logic of the fund becomes much easier to follow.

The General Partner, or GP, manages the fund. They identify investment opportunities, conduct due diligence, negotiate transactions, and oversee operational development. The Limited Partners, or LPs, provide capital to the fund. They are the investors who receive a share of any potential profits while also bearing the investment risks.

In addition, there are various ways a fund can invest:

A primary investment means a fund invests in a newly launched private equity fund. The capital flows early into a new fund strategy that is still in the process of building its portfolio.

A secondary investment involves purchasing existing fund shares from other investors. This allows a fund to enter portfolios that already hold investments and have a shorter remaining term.

A co-investment is a direct participation in a single transaction, usually alongside an experienced fund manager.

Why does this matter? Evergreen funds often mix these exact components. Primaries provide access to new vintages, secondaries can ensure that capital is put to work more quickly in existing portfolios, and co-investments provide direct access to individual deals. This can help mitigate the typical startup phase of a classic fund, known as the J-curve.

If you would like to dive deeper into the asset class itself, you can find the basics in the article What is private equity? For a distinction from early-stage growth companies, it is worth comparing Private equity vs. venture capital.

Why private equity funds are more expensive than ETFs

Private equity funds generally cost more than ETFs. The reason lies in the work behind them.

An ETF typically tracks an index. A private equity fund buys private companies, evaluates business models, negotiates prices, supports management teams, develops strategies, and eventually organizes the sale. This active work on the company is resource-intensive and is reflected in the fees.

Here is the honest assessment: higher costs are a reality. They are intended to be justified by active value creation, but this provides no guarantee. Whether a fund is worth it after costs depends on manager quality, entry valuations, portfolio construction, duration, market environment, and fund terms.

That is why we at NAO take a close look before a fund is added to the platform. Not every fund is a good fit for NAO, and in private equity, experience, access, and a sound structure count for more than a fancy product name.

Is private equity worth it? What the data shows

Private equity can offer attractive return potential over the long term. At the same time, the risks are higher, liquidity is lower, and the valuation of private companies follows a different logic than daily stock market prices.

An often-cited perspective comes from the Hamilton Lane 2025 Market Overview: Historically, 1 US dollar invested in private equity in 2015 grew to 3.96 US dollars by 2024. In the same period, 1 US dollar in the S&P 500 grew to 3.51 US dollars, and 1 US dollar in the MSCI World grew to 2.61 US dollars. This is a historical figure and not an indication of how private equity funds will perform in the future.

For you, this figure primarily serves as a guide. Private equity can provide a return premium if managers find good companies, develop them, and sell them successfully later. At the same time, you tie up capital for longer, redemptions may be limited, and losses—up to a total loss—are possible.

How you can invest in private equity funds as a private investor

If you want to invest in private equity today, you no longer necessarily need the traditional closed-end world with six-figure minimum investments. Access is increasingly provided through regulated fund structures that are open to private investors.

One example is the ARK Private Innovation ELTIF, which is accessible via NAO. The fund holds private companies such as OpenAI (around 26.5 percent), SpaceX, and Databricks. Through NAO, you can invest from 1 euro, including via a savings plan.

An ELTIF is a European fund structure that can provide private investors with access to private markets. It works differently than an ETF: it has a long-term investment horizon, restricted liquidity, limited redemption options, and risks that include the potential for a total loss.

In the traditional private equity sector, there are also established managers who have shaped evergreen structures. Partners Group has been considered an evergreen pioneer since 1996, and UBS is another major name in the market. You can find an overview of corresponding private equity access options via NAO at Private equity with UBS and Partners Group.

The point is: private equity funds are more understandable and accessible today than they used to be. Nevertheless, they remain long-term investments in private companies, with both opportunities and real risks.

FAQ

What is a private equity fund?

A private equity fund invests pooled capital in non-publicly traded companies. The fund manager buys stakes, develops the companies over several years, and ideally sells them later at a profit.

How does a private equity fund work?

A private equity fund collects capital from investors, builds a portfolio of private company stakes, and works on their value development over several years. Profit is typically generated upon the eventual sale of the stakes, though losses are also possible.

What is the difference between a closed-end fund and an evergreen fund?

A closed-end fund typically has a fixed term and operates via capital calls, whereas an evergreen fund can remain open for new capital on an ongoing basis. Evergreen and semi-liquid funds often allow for periodic redemptions, though these are subject to fund terms and potential limits.

What are capital calls and why don't evergreen funds use them?

Capital calls are requests for investors to pay in committed capital incrementally as the fund acquires new investments. Many evergreen funds use a one-time subscription model, so you don't need to plan for additional calls over several years.

What do primary, secondary, and co-investment mean?

A primary investment is an investment in a newly launched fund, a secondary investment is the purchase of existing fund shares from other investors, and a co-investment is a direct stake in a single transaction alongside a fund manager. These building blocks are frequently combined in modern private equity funds.

How can I invest in a private equity fund as a retail investor?

As a retail investor, you can invest in private equity funds through regulated fund structures, such as selected ELTIFs. At NAO, access to certain private market funds is possible starting from 1 euro, and depending on the product, via a savings plan.

Why are private equity funds more expensive than ETFs?

Private equity funds are more expensive than ETFs because they involve active management of companies. While an ETF typically tracks an index, private equity managers acquire private companies, develop them further, and eventually organize their sale.

Disclaimer and fund documents

This article does not constitute investment advice or an individual recommendation; it is for general information purposes only. Private equity funds are long-term investments, redemptions may be restricted, and capital losses up to the total loss of the investment are possible. You can find the complete fund documents and the KID in the NAO app.